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25th February 2016, 05:52 PM
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| Re: Macroeconomics Quiz answers
As you have asked about the Macroeconomics quiz questions and answers, I am providing you with it Part I (Short Questions, 2 points each, 10 points total) 1. What is an automatic stabilizer? It is something that diminishes automatically the volatility of the economy. It diminishes the multiplier so that shocks do not deviate the economy very far from normal growth levels and hence from the natural level of unemployment. This is the case of progressive tax schemes or unempl oyment benefit systems 2. What is the money multiplier? The increase in the money supply resulting from a one-dollar increase in central bank money. This proportion is equal to (c+θ(1-c))-1 where c is the proportion of money held in currency by individuals and θ is the ratio of reserves to deposits held by banks. 3. What is Walras’ Law? What role does it play in the way we construct the IS-LM? The finding that if all but one of the conditions for general market clearing hold, then the final one must hold as well; this result follow because households’ budget constraints must be satisfied. When we construct the IS-LM model we assume an economy with a bonds market, a money market and a goods market. The IS represents equilibrium in the goods market. The LM represents equilibrium in the money market. If household’s budget constraints hold, then we know hat the bonds market must clear and the IS-LM will represent macroeconomic equilibrium. 4. What is Okun’s Law? How do we incorporate it into the general model of inflation and unemployment? Okun’s law is the observed relation between GDP growth and the change in the unemployment rate. We use Okun’s law to close the macroeconomic model composed of the Phillips curve (relating unemployment and inflation) and the aggregate demand (relates gdp growth with inflation). 5. What is the Fischer hypothesis? The proposition that in the medium run an increase in inflation is reflected in an identical increase in the nominal interest, leaving the real interest rate unchanged. Part II (True-False-Uncertain, 5 points each, 40 point total) E 1. Through a typical business cycle, we expect that each 1% increase in GDP will be associated with a 1% change in business investment and 1% change in private consumption. False. Both investment and consumption move together during the business cycle, but historically investment has been much more volatile than consumption. However, the level of investment is much smaller than the level of consumption, so that it turns out that both investment and consumption contribute roughly equally to fluctuations in output over time Macroeconomics Quiz      For more, you can refer to the attached file |